With Today’s Low Rates, Refinancing A Home Loan Could Save You Thousands
Posted on August 22, 2010
Filed Under Debt Relief, Loans | Leave a Comment
With mortgage loan rates falling to all time lows, several people are wondering if refinancing their mortgage is a good idea. Obviously, there are many reasons to consider a home refinance, especially with loan rates so low. A few reasons to consider a home refinance are reduce monthly payment, reduce interest rate, pull out extra cash, change mortgage term and go from an adjustable rate mortgage to a fixed rate mortgage.
Mortgage Rates At All Time Lows
Today’s market has caused mortgage loan rates to fall to historic lows making this a fantastic time to consider a home refinance. As long as there is a benefit to the new home loan, now is a great time to refinance your home loan. There are several opportunities to save thousands of dollars in today’s mortgage rate environment and home loan rates will not stay at these levels forever.
Time to refinance and save money is now, but remember, it is very important that you have a reason to refinance along with a benefit for the new mortgage home loan. Below are some of the benefits to refinancing a mortgage loan.
Reduce Monthly Mortgage Payment
When considering refinancing your house to lower your monthly payment, you need to take into consideration how much your payment will be lowered by. Most believe the payment must be lowered by at least 5% in order for the refinance to have a benefit.
Lower Mortgage Rate
Reducing your payment is in large part affected by the interest rate. If you refinance your home and lower the interest rate by at least 1%, then you will see a decrease in payment as well. Most homeowners do not consider refinancing if the rate does not drop by at least 1%. Keep in mind, that even a slight reduction in rate can have a huge impact on the mortgage.
Cash Out Mortgage Option
Many people will pull out cash during a refinance. The cash out home loans allow homeowners to refinance their existing mortgage loan and get extra cash that can go towards debt consolidation, home improvements or anything else the homeowner may want to use the money for. Keep in mind that cash out loans have a slightly higher rate and that a homeowner needs to take into consideration the overall financial picture. There are times that a cash out refinance mortgage could have a higher rate than the current mortgage, but the overall benefit for the loan could outweigh the higher rate. For example, if a person has a $200,000 mortgage loan at 5% with a payment at $1400 and has over $10,000 in credit card debt paying $500 per month, by refinancing into a new loan at 5.25% with a payment of $1500 will save this person $400 a month.
Change in Loan Term
Some homeowners refinance their house to change the term of the loan. The most common change is to go from a 30-year loan to a 15-year mortgage. The idea is to pay off the note quicker and save more money over the lifetime of the loan. The payment could increase, but the benefit to this type of refinance is paying the home off sooner.
ARM to Fixed Rate Mortgage
Finally, another reason to consider refinancing is when you are taking an adjustable rate mortgage loan and refinancing into a fixed rate mortgage loan. ARM loans can have a low rate, but the rate is variable and will change throughout the mortgage. ARM mortgages are designed for homeowners who plan on only keeping the loan for a short amount of time, ordinarily 5-7 years. By refinancing into a fixed rate home loan, you are locking in the rate for the entire loan term.
There are some reasons to not refinance. If you are planning on selling your home in the next year or so, refinancing might not be the best option. You will have to consider the amount of money of refinancing and what the overall benefit will be.
With rates at all time lows, it’s crucial to discuss with a mortgage consultant and discuss your mortgage options to see if there is a benefit to a refinance home loan.
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- Refinancing Home Loan Benefits
- Refinancing Mortgage Rates Learn Why Do Individuals Do It?
- Long-term Home Finance Loan Rates Rise Somewhat, While Variable Rates Drop
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